• Understanding offset accounts

    Understanding offset accounts

    What is an offset account?

    An offset account is a transaction account linked to your home loan that may be able to help reduce the interest you pay on your home loan. The balance in the transaction account is effectively offset daily against your outstanding home loan balance.

    Features: 

    • You could reduce interest: offset the balance of your eligible transaction account against the balance of your home loan. You will only pay interest on the balance outstanding in your home loan account, less the amount sitting in your offset transaction account.1
    • Easy access: an offset account allows you to make the most of your income and other funds to reduce the amount of interest payable on your home loan, while keeping access to that money, should you need it. 
    • You could reduce the term of your loan: reducing the interest you pay over time means that if you are making principal and interest repayments and you do not redraw your available funds in your home loan account, you could pay off the principal of your home loan sooner and reduce your overall loan term.

    Offset scenario

    Chloe and James have a $400,000 variable rate home loan and $40,000 in a RAMS Action with Offset account. As the offset account is linked to their home loan, the amount on which they pay interest is $360,000 ($400,000 – $40,000). If the interest rate on the loan was 4.5% p.a., the interest for the month would be $1,376, which is $152 less than what they would have been charged without the offset facility.2 The good thing is, the money sitting in the transaction account is easily accessible when required. 

    Assumes a 31 day month and no other transactions on the home loan or offset account during the month.No interest is paid on the funds in the RAMS Action with Offset while it is linked to the RAMS home loan.

     

    More Information: Any advice does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you.

    1 Offset effect is only calculated on the balance in the offset account, any change to the balance throughout the calendar month will impact the overall offset effect on the interest charge. 

    2 The calculations used in this scenario are for illustrative purposes only. The calculations do not represent actual rates or products. Offset facility is not available to company or trust borrowers and other conditions and limitations apply. 

     

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    About the author

    • Raymond

      Raymond A Ram is the RAMbassador for RAMS Financial Group. Raymond works with the RAMS team to bring simple, helpful and expert information on home loans and savings accounts to life with his down to earth and cheeky personality. He enjoys seeing everyday Australians turn their dreams of saving for a goal or getting into a home a reality. 

      Growing up in Goulburn, NSW, Raymond was brought up with good old-fashioned Aussie values of hard work and a fair go. It soon became apparent that Raymond wasn't content for the conventional path of grazing, producing the very best wool, and finding a nice sheep to settle down with. So it wasn't long before his passion for performing and his talent as a likeable larrikin shone through - landing him a few roles such as 'RAMlet'. He was even tipped to play RAM-bo at one point but chose to become star of the small screen instead as RAMbassador for RAMS. He now finds this role so much more rewarding.

      Contact your local RAMS Home Loan Centre about your home loan options.

      Raymond A Ram
     

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  • Disclaimer:

    The information here is of a general nature only and is not intended to constitute financial or tax advice. You should consult your professional adviser, accountant or taxation expert for advice specific to your personal circumstances.

    The views and opinions expressed in this article are those of the author alone and do not necessarily represent the views or opinions of RAMS Financial Group Pty Ltd ABN 30 105 207 538 (RAMS),  Westpac Banking Corporation ABN 33 007 457 141 (Westpac) or their related bodies corporate. This article is strictly for information purposes only and neither RAMS, Westpac nor any of their related bodies corporate make any representation as to the accuracy or completeness of the information in this article or endorse the views expressed in it.